It’s difficult to believe that former Wall Street darling Apple Inc. (NASDAQ/AAPL) traded at a record high of $705.07 on September 21, 2012. Fast-forward five months and the stock has not been able to mount any sustainable rally since its high, as shown by the downward trading channel on the chart below. The $500.00 level will be tough to overcome, given its competition’s products and superior pricing, based on my stock analysis.
Apple’s stock chart clearly shows a trend reversal to the bearish side, according to my technical analysis. Failure to hold could see Apple fall to the low-$400.00 level.
Chart courtesy of www.StockCharts.com
There are questions regarding the ability of CEO Timothy Cook to deliver the superlative revenue growth traders have been accustomed to in the past. The problem lies in the rising popularity of Samsung Electronics Co. Ltd., Google Inc.’s (NASDAQ/GOOG) “Android,” Research In Motion Limited’s (NASDAQ/BBRY) “BB10,” and Microsoft Corporation’s (NASDAQ/MSFT) “Windows 8” phones and tablets. (Read “Why Nokia Could Be a Moneymaking Investment.”) The competition is fierce, so Apple will need a “Plan B” according to my stock analysis.
For instance, some signs that something may be wrong at Apple include the company’s decision to cut the price of its highly anticipated “MacBook Pro” with retina display. Apple generally dictates the price of its products sold at the retailers, so the fact that Apple slashed the original $1,699 price to $1,499 may be a clue that the company is facing tough competition from less expensively priced, similarly configured laptops from its rivals, as my stock analysis suggests.
The slippage in Apple’s business is evident, based on my stock analysis. Apple shipped 14.6% of the total number of smartphones shipped globally in the third quarter, versus 23% in first quarter 2012; in comparison, Samsung’ shipments surged to 31.3% in the third quarter, according to International Data Corporation. (Source: Osawa, J., “Apple Cuts Orders For iPhone Parts As Demand Slips,” The Wall Street Journal January 14, 2013.) There is also speculation that Apple is cutting its orders for parts used to build the “iPhone 5” due to lower demand.
As my stock analysis suggests, based on Apple’s global market share and declining revenue growth, the company is in trouble. According to analysts polled by Thomson Financial, Apple is estimated to grow its revenues by 17% in fiscal 2013 (down from previous estimates of 22.2%), only to see revenues fall to a mere 13.2% in fiscal 2014. My stock analysis indicates that these are not growth metrics investors are paying for, and they pale in comparison to the company’s 70% and 80% growth in 2011.
According to my stock analysis, Apple needs to do something more than just launching new “iPhones” and “iPads” to drive revenue growth. There is speculation that Apple is developing a cheaper iPhone to be launched later in the year, according to The Wall Street Journal. (Source: “WSJ: Apple to build cheaper iPhone as smartphone dominance slips,” Apple Insider web site, January 8, 2013, last accessed February 15, 2013.) As my stock analysis notes, if this is true, this strategy would make sense for Apple, as the company needs to sell much cheaper phones in the emerging economies, eventually encouraging these buyers to upgrade to its more expensive products.
Samsung and Nokia Corporation (NYSE/NOK) are already selling cheaper smartphones in China; it’s not rocket science to surmise that Apple would follow suit, as my stock analysis suggests. The one main problem that I see is the price point for the cheaper iPhones. My stock analysis suggests that the iPhone would need to have a major cut in price for it to be competitive. My stock analysis indicates that Apple also needs to consider the margins for the selling price. If it’s too low, margin erosion occurs; too high, and no one buys.
The bottom line is: Apple needs to do something to drive new streams of revenues to help drive growth; otherwise, the company will be in trouble.